AT&T-Time Warner face uphill battle in Washington
$85.4bn takeover poses first test of next administration’s competition policy
AT&T faces an uphill battle to convince US regulators that its proposed $85.4bn purchase of Time Warner will not unfairly distort the media and communications industries after opponents of the deal said the combined entity would wield too much market power.
America’s largest telecoms group by market value announced on Saturday it would pay $107.50 a share for the owner of CNN and HBO, which produces Game of Thrones and Veep, and Warner Brothers, Hollywood’s largest film and television studio.
But the deal sparked immediate opposition over the weekend and looks set to be one of the first and biggest tests of the next president’s antitrust policy.
Donald Trump told a Gettysburg rally that he would block the deal if elected president and Al Franken, the Democratic senator for Minnesota, said it raised “some immediate flags about consolidation”. Tim Kaine, Hillary Clinton’s running mate, told NBC he shared those concerns, saying “less concentration I think is generally helpful, especially in the media”.
The purchase faces at least a year of regulatory scrutiny. In a joint statement, senators Mike Lee and Amy Klobuchar, the chairman and ranking member of the Senate antitrust subcommittee, said the deal “would potentially raise significant antitrust issues, which the subcommittee would carefully examine”.
“I think AT&T is going into this knowing they have an uphill battle,” said Amanda Wait, an antitrust partner at Hunton & Williams, a Washington law firm. “Any Clinton administration will take a tough look at it. The key issues here will be whether owning Time Warner content harms competition or whether it makes AT&T stronger.”
The Trump campaign issued a statement on Sunday from Peter Navarro, its senior economic advisor, argung that big media conglomerates were “pushing Hillary Clinton’s agenda” and would be broken up by a Trump administration. Mr Navarro attacked “Clinton megaphone MSNBC”, “the wildly anti-Trump CNN”, the Jeff Bezos-owned Washington Post and the New York Times, whose “strings are being pulled by Mexico’s Carlos Slim”.
The cash and stock deal brings together the telephony pioneer started by Alexander Graham Bell in the late 19th century with an entertainment group that has its roots in the early days of Hollywood.
Randall Stephenson, AT&T’s chief executive, expressed confidence that the deal would be approved, saying there was no overlap between the two businesses. “This is not a horizontal deal. This is a vertical merger,” he told journalists on a weekend conference call. You would be hard pressed to find examples where vertical mergers have been blocked.”
AT&T will point regulators to the 2013 purchase of NBCUniversal by its rival Comcast, a deal which was cleared after regulators imposed concessions on the cable operator. “The antitrust division has received some complaints about Comcast’s NBCUniversal deal,” Ms Wait said. “They will take a hard look back at their experience to see if those remedies worked.”
Time Warner has agreed to pay a $1.7bn break-fee to AT&T if it opts to sell to another buyer while AT&T will pay Time Warner $500m if regulators block the deal, according to two people close to the negotiations.
Mr Stephenson acknowledged that AT&T would be legally obliged to share the content produced by Time Warner with other distributors but said owning its own film and television programming would drive innovation.
“When you’re trying to change business models. doing that with arms-length [content] deals is really slow. We can innovate much faster and get [services ] to market much faster if we own it,” he said.
He and Jeff Bewkes, his opposite number at Time Warner, revealed that deal discussions started in August. Mr Bewkes said he would stay with the company while regulators scrutinise the deal and then work on the transition to new ownership before retiring.
Mr Bewkes said the sale was necessary given changes in audience behaviour and technology, suggesting AT&T will be able to market and sell Time Warner’s content direct to consumers. “It creates more flexibility in consumer subscription packages and more innovation in advertising,” he said.